U.S. TAX GUIDE IN THE UK
What are the key takeaways for managing a SIPP as a US expat?
Managing a Self-Invested Personal Pension (SIPP) as a US expat involves understanding investment control, filing deadlines, and what to do if you miss a deadline.
Here are the key points:
- Investment Control: SIPPs offer more control over investments and qualify as a pension under the US-UK Tax Treaty, avoiding individual PFIC reporting.
- Filing Deadlines: Forms 3520 and 3520-A must be filed to avoid penalties.
- Missed Deadlines: The Streamlined Foreign Offshore Procedures (SFOP) can help mitigate potential penalties if deadlines are missed.
What is a Self-Invested Personal Pension (SIPP)?
A Self-Invested Personal Pension (SIPP) is a UK pension scheme that allows individuals to save for retirement with greater control over investment choices compared to typical employer-provided pensions. British citizens can contribute up to £40,000 a year tax-free.
What should US citizens or Green Card Holders know when purchasing a SIPP?
The US treats a SIPP as a foreign grantor trust. This means the trust’s assets are considered owned by you, and the income must be reported on your personal income tax return. You need to file Forms 3520 and 3520-A to report the SIPP properly.
What are the differences between Form 3520 and Form 3520-A?
- Form 3520: Reports the trust’s existence, establishment details, registered address, and any distributions to a US person.
- Form 3520-A: Provides detailed information about the trust, including its assets, income, and names of US owners and beneficiaries.
As the owner of a SIPP, you are required to file both forms annually.
When are the filing deadlines for Forms 3520 and 3520-A?
- Form 3520: Must be paper-filed to a special IRS department in Utah by April 15.
- Mailing Address: Internal Revenue Service Center, P.O. Box 409101, Ogden, UT 84409.
- Form 3520-A: Due by March 15.
Missing these deadlines can result in penalties of at least $10,000 per trust.
Are there extension options for Forms 3520 and 3520-A?
Yes, extensions are available. File for an extension by March 15 to get a six-month extension for Form 3520-A. Form 3520 also has an extension option, but each form requires a separate extension request.
What if you miss the filing deadline for Forms 3520 or 3520-A?
- Penalty Notice: Contact a tax professional to help appeal the penalties.
- No Filing Yet: Use the Streamlined Foreign Offshore Procedures if the missed filing was due to non-willful reasons. This program can help waive penalties.
Is a SIPP protected by the US-UK Tax Treaty?
Yes, a SIPP qualifies as a pension under the US-UK Tax Treaty, meaning its earnings are exempt from US tax until the money is withdrawn.
